UK Government Update on Sustainability Disclosure Requirements Framework

On 16 May 2024, the government published updated guidance regarding the UK Sustainability Disclosure Requirements (SDR) framework.

The SDR was first set out in Greening Finance: A Roadmap to Sustainable Investing in 2021, and structured as an economy-wide framework with a number of separate but connected components, including the UK Green Taxonomy and Transition Plan Disclosures.

The updated guidance outlines the next steps for the SDR in the context of the International Sustainability Standards Board (ISSB) global baseline standards, which launched in 2023.For more information, see this Latham Client Alert.

Notably, the update includes a delay to the proposed incorporation of the UK Sustainability Reporting Standards (a core component of the SDR), which would require companies to disclose their climate impacts.

Background to the UK Sustainability Reporting Standards

In August 2023, the government announced that it would develop standards for corporate sustainability disclosures in the UK, with an initial expected timeline of July 2024.For more information on the initial press release relating to the UK Sustainability Reporting Standards, see this Latham blog post. The revised timeline in this latest guidance indicates the endorsed standards are now due in Q1 2025. A decision on potential future requirements would then follow in Q2 2025, with the requirements becoming effective no earlier than accounting periods beginning on or after 1 January 2026.

The standards form part of the UK’s broader strategy to support the UN Sustainable Development Goals and the UK’s Green Finance Strategy. As such, in-scope companies would be required to provide accurate and relevant information about their sustainability practices, thereby enabling investors and stakeholders to make more informed decisions.

The delay to the standards was prompted by feedback from businesses and industry groups that are grappling with the complexities of the proposal. The additional time is intended to ensure that the final regulations are both effective and practical for implementation across various sectors. Businesses will be encouraged to participate in the consultation process to provide input on the practical aspects of the reporting requirements.

Following endorsement, there will be a consultation process to update the current TCFD-based disclosure standards for UK-listed companies to reference the ISSB Standards.

Updates on Further UK Regulatory Initiatives

The Implementation Guidance document provides updates on a number of other elements of the broader SDR framework, including:  

• Transition Plan Disclosures: In April 2022, the government launched the Transition Plan Taskforce to help companies communicate their net zero plans. The government confirmed intentions for relevant regulators to strengthen expectations for transition plan disclosures alongside work to align UK rules with the ISSB standards.ISSB Standard “IFRS S2 – Climate-related Disclosures” includes a requirement for companies to disclose details on their transition plan, if they have one.
• UK Green Taxonomy: The document notes that “The Government continues to work at pace and expects to consult in due course” on the proposed Green Taxonomy, although no specific date is given. Following consultation feedback, there will be a voluntary testing period for at least two years before the possibility of exploring mandatory disclosures.
• Nature-Related Disclosures: Although the government welcomes the work of the Taskforce on Nature-related Financial Disclosures (TNFD) in developing recommendations on nature-related issues,The TNFD published its final recommendations in September 2023, which the government encourages institutions to consider. it does not commit to implementing any nature-related obligations in the UK regulatory framework.

Next Steps

The government will release a revised timeline and details of the consultation process for the UK Sustainability Reporting Standards in the coming months.

Latham & Watkins will continue to monitor developments in UK sustainability reporting alongside global regulatory developments in this area.